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RichardCox

Essential Elliott Wave Patterns Pt. 1

By RichardCox, in Forex

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Peterthemonkey    10

Peterthemonkey
Posted

SunTrader my prior post wasn't directed at you, we agree, sorry I didn't make it clear.

 

To all, succinctly stated a major issue with EW theory is that proponents do not appear to accept the concept of failure.

 

edited quote from tradingwizzard:

Elliott works only from a top-down analysis point of view.......what this means is that you are counting monthly, weekly, daily charts, and then pick your entries and SL on 4h and 1h charts...invalidation means something is wrong and have to do it again.....

 

regarding your post, Elliott is a summ of scenarios, and by the time one is invalidated, the one that stands still is the winning one...

 

This recognizes that a potential pattern failed to form in a certain timeframe, but since pattern never materialized it is not pattern failure, something else went wrong, caused

its misinterpretation. And since we can find a valid pattern, potentially in a future larger timeframe into eternity, pattern concept is valid. According to this concept 20ma's or double bottoms, for example, are infallible. A counterproductive trading concept. Do I understand this right?

 

The emphasize placed on EW infallibility just leads people astray. A trader must recognize a "potential pattern" or whatever "view" of the market they choose to employ failing to materialized in expected scenario, as others have noted, which is recognized in quote above.

 

I think a lot of the fuzz about EW boils down to a matter of approach. EW proposes its validity based on the possibility of an event, presumably into infinity. Where others approach patterns, etc, as the probability of an event within defined confines.

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tradingwizzard    10

tradingwizzard
Posted
I don't expect EW to work perfectly 100% of the time any more than some other market theory.That would be unrealistic.

My basic point is that i have seen how expectation bias can really sidetrack a trader/follower of other people's analysis./theory

 

Let me give a recent example.I am no fan/expert of EW but i believe studying waves is worthwhile since that is the basic format in which the market moves.So,there is a blog i have been following for years now and it's useful in many ways.One way is to get a general consensus of what type of 'crowd think' is going on at times of market uncertainty-inflection points.

 

Now the example.Having reached 1710 on SPX the analyst was anticipating a correction of 10% down to 1539.Why 10% and why at this point? Simply to do with waves of a certain degree ending (signal a reversal) and 10% would be in keeping to historical corrections when dealing with this wave degree.

 

So he anticipated an ABC from 1710-1630-1680-1530.SPX went to 1627,so he was correct on 2 things so far.A-that a correction was due and B-the first target.This guy is pretty good so it was no suprise he was right so far.Now SPX had to reach 1680 and not much further before making a C wave to the lower target.At this point most,not all,of his followers were anticipating good profits on the short side convinced the market was heading down soon.

Now one thing i gather about EW is that overlapping choppy waves tend to be of a corrective nature rather than impulsive- to me that is expectation bias (as if there isn't enough going on here already)

From 1627 up to 1665 all the waves look corrective.Haven't hit 1680 yet so this all looks corrective and the scenario looks on target.

However,from then on things start looking a bit more impulsive up to 1690.At this point a lot of nervous shorts are asking a lot of questions regarding alternative counts,not to mention a few sceptic bulls shaking their heads at the herd behaviour.Unfortunately for the shorts this analyst gives the market a lot of leeway before he rules out a count- he's a long term swing trader and as you can imagine,a lot of his followers are daytraders.

The count AND all alternatives would only be invalidated should the market make new highs-which it just did.

 

You'll notice in EW rules you'll often see the words "must" and "cannot" those are not my favourite words in trading.Rather than "cannot" you'll often find it can...oh boy it can.And if you tend to think a wave "must" you'll often find the market didn't get the memo.

 

The target for B wave was 1680.When the market passed that point alarm bells should have rung.But no.There were a mind boggling number of alternative counts that could conceivably maintain the bearish scenario.(mainly proposed by long term members of the blog most of whom have their own blogs)

 

This is not exactly "judge the market by it's own actions" This is expectation bias self inflicted due to abdicating responsibility for analysis in favour of a percieved expert or theory.And a lot of time and energy seems to be spent in carefully reloading the gun to continue shooting oneself in the foot.:)

 

But i guess once a smoker (EW'er) quits......oh you know.

 

Now i know some of you want a link to this blog in order to have a good old laugh and use it as your fade the crowd tool.But,as i said i rate this analyst quite high,and believe me,if you don't know me that well here,that is high praise indeed.And as i haven't shown things in a particularly favourable light then i think it would be a little unfair to link it here.

 

My advice..treat the market like a lying,recividist criminal in custody."Now,let's go over that story one more time and compare it to the evidence i'm seeing here..."

 

hey mits,

 

negative interpretation of what Elliott really means......in this way I can paint a negative picture on any trading strategy is I were to outline only the drawdowns........try to balance it a bit and you will see it's not that bad actually

 

TW

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tradingwizzard    10

tradingwizzard
Posted
And what does Elliott wave "really mean"?

As for balancing it "a bit"

 

...I balanced it exactly as required since I related the story exactly as it unfolded.And the story,after several years watching that blog on a daily basis,is completely typical- groundhog day.

 

it depends who's posting

TW

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tradingwizzard    10

tradingwizzard
Posted
Wiz,the question was what does Elliott Wave "really mean" ?

Answer will "depend on who is posting"..but I was asking you since it was you that made the statement.

Care to take a stab at it? Scalpel or butcher's knife..your choice.

 

ok, ok....

 

Like mentioned many times I trade mainly based on Elliott waves counts I keep on all currency pairs as I am a currency trader. Don't ask me why only currencies, I guess I like volatility there and the fact that the market is active all the time......so probably me and market are alike from that point of view.

 

Saying mainly Elliott waves as sometimes I use correlations if for example I am bearish on eurusd and the eurgbp cross is consolidating (in a contracting triangle for example) then I will just go short gbpusd without even taking a look at a chart........a cross like the eurgbp here is the key in trading the majors.....and there is a cross for every majors out there so knowing two variables out of three gives you a competitive advantage ahead of the markets

 

Coming back to Elliott I read on the subject in time almost everything what has been published, including the guys biography and my conclusion is that Elliott is the perfect sum of human behavior........if markets are a sum of human behaviors than this theory relate to it the most......it is confusing (aren't we all?), complex (aren't we all?), having tricky patterns that may or may not work (aren't we the same in all that we do?)....but out of all this confusion there are some things I found of extreme value....some basic stuff that I use and that guide me and this is what I trade:

 

1. patterns - especially triangles, (contracting mostly)....I love triangles and since price is spending most of the time in consolidation patterns they are extremely common......Elliott described some fairly good rules regarding triangles so understanding those will give you an advantage ahead of any possible triangle.....after the b wave one can trade it pretty nicely and depending on the time frame, scalping or even swing it

 

2. extension - if an impulsive move needs one wave >161.8% then this is what I am looking for........having that, searching for corrections in between and projecting outcome

 

3. top down analysis - I always start from the monthly chart below....if there's a contracting triangle on the weekly chart, then I will look only for abc's on the daily and 4h and of a sub degree wave I will look for impulsive moves ,etc.

 

What I am trying to say is, like any thing you do, if you are not doing it properly then you might just quit....of course it is confusing and looks like 1000 possibilities all the time...but this comes only out of lack of knowledge.......many want to be traders without doing the work...well, this is not possible....study, work hard, and it will come

 

TW

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